AIG May Face An $11 Billion Shortfall In Insurance Reserves

Today a Sanford C. Bernstein analyst released a note on his discovery that the insurer has an undisclosed $11 billion shortfall in reserves to pay property-casualty claims.

Todd Bault said that AIG may have cut back on its use of reinsurance and become too "aggressive" in pricing workers' compensation and professional liability policies. As a result, AIG would likely have to take a huge reserve charge before it could sell its Chartis property-casualty business.

"AIG shareholders and the federal government face considerably more uncertainty than they may have anticipated," Bault wrote.

For months there have been rumors that Chartis was selling insurance an unsustainably low levels. Chartis officially dismisses these as whining from competitors. But if Bault is right, it looks like there may be some merit to this complaint.